The government finally broke the jinx over its divestment plans today when it cleared the sale of a 51 per cent stake in Calcutta-based CMC Ltd to the Tatas for Rs 152 crore and a 74 per cent holding in Hindustan Teleprinters to Himachal Futuristic Communications Ltd for Rs 55 crore.

The decision was taken at the meeting of the cabinet committee on disinvestment (CCD), disinvestment minister Arun Shourie told reporters after the meeting.

The twin approvals, which will net the exchequer Rs 207 crore, underscored the government’s resolve to sell its holdings in 13 public sector units over the next six months — which means one PSU on the block every fortnight.

The CMC stake will be picked up by the Tata Sons, the holding company for the Tata group, through its division Tata Consultancy Services. TCS is the country’s largest software exporter.

CMC, which notched up gross sales of Rs 468.74 crore during the year ended March 2001, has an
equity capital of Rs 15.15 crore.
It earned a net profit of Rs 12.7 crore.

The Tatas will be acquiring around 77.26 lakh shares with a face value of Rs 10 each at a price of Rs 196.89 per share.

On Friday, the CMC stock closed on the Bombay Stock Exchange at Rs 213.65, up Rs 11.25 over the previous close.

The employees’ stake in CMC will be 6 per cent.

Before inviting the technical and financial bids for CMC, it was laid down that the bidder should be a strategic partner having a long-term perspective and should not resort to asset stripping. While the strategic partner would have management control, the government will reserve affirmative voting rights on several key decisions.

At its meetings, the CCD also decided that the disinvestment process will now begin for Mecon, the consultancy firm in the steel sector, that has been running into losses and difficulties for the last three years. Shourie said the government intends to divest up to 51 per cent in Mecon with up to 10 per cent earmarked for employees.

The expression of interest in CMC was invited in February. Initially, 14 bidders -- five international and nine Indian firms — had shown their interest and were shortlisted. However, only two of them finally submitted bids — CDC and the Tatas. The CDC bid was non-compliant as the required bank guarantee had not been furnished. “The reserve price for CMC was Rs 108.9 crore. In both the disinvestment cases, the government’s decision was based on the fact that we got prices above the bid price,” said Shourie.

The evaluation committee employed four methods of valuation for the 100 per cent equity shares in CMC. Under the discounted cash flow method, the valuation was Rs 213.5 crore; under the asset valuation method, it was Rs 37.6 crore; under the balancesheet method, it was Rs 72.7 crore; and under . the comparable companies method it was Rs 102.5 crore.

The government was at pains to point out that even though it was selling the shares to the Tatas below the prevailing market price, the evaluation committee had noted the distortions in the price of the CMC scrip which was out of sync with the BSE trends in the IT industry and comparable companies in the IT sector.

Shourie said the disinvestment ministry has asked Sebi to enquire into the sudden price rise “as we want to know who is buying and selling these shares.” Sebi will start the enquiry after October 16.

In the case of HTL, there were two bidders in the fray in the last leg. HFCL’s Rs 55 crore bid pipped the Rs 50 crore bid put up by Tamil Nadu Newsprint and Papers Limited and United Telecom with their bid of Rs 50 crore. In case of HTL, the same four valuation method was used.

Open offer after MoU

The Tatas said the process of coming out with a mandatory open offer for CMC stock would be made only after the group signed a memorandum of understanding with government for the sale of 51 per cent equity.

HFCL chief Mahendra Nahata said HTL’s acquisition was synergistic to the group’s business and it would now look at introduction of new products in access and broadband segments.

HFCL said it would strive to more than double the turnover of the acquired entity to over Rs 800 crore, he said.

Nahata said he had no plans now to downsize HTL which has about 1,200 strong workforce.

CASH INJECTION TO CURE GROWTH PANGS

FROM OUR SPECIAL CORRESPONDENT

New Delhi, Oct 5:

Fast-track funding for mega projects

In a bid to jump-start the economic recovery, finance minister Yashwant Sinha today asked financial institutions to close mega projects at an early date even as he went ahead with plans to decentralise investment decision-making in the government to speed up state-funded projects. Sinha held a two-and-a-half hour meeting with heads of financial institutions today to review their project financing activities. Ministry officials tried to work out on-the-spot solutions to the bottlenecks that have bedevilled the completion of private sector mega projects.

Admitting that the economy was going through “perhaps the most difficult time,” the minister told reporters after the meeting that he had asked banks and financial institutions to provide “balancing funds (or money needed beyond original loan sanctions) so that private sector projects are completed on time.”

Several large projects in the power, refinery and highway sectors are currently stuck at various stages due to a variety of problems. The government feels their completion will be central to its attempts to revive the economy.

Sinha also indicated the finance ministry has an open mind on offering letters of comfort for projects which need to go in for enhanced terrorist-related insurance cover. But he added that till now “only two public sector airlines have sought these.” Several projects including Reliance’s Jamnagar petroleum complex are believed to be keen that the government gives them some kind of cover. The finance minister also said the government would soon decentralise financial powers to expedite investment decisions. “This is my top priority. I have asked ministry officials to prepare a blueprint for decentralisation,” Sinha said.

The minister explained that once a project’s costs had been cleared by the general budget passed annually, administrative ministries would not need more clearances.

He also indicated that while the government favoured a softer interest rate regime, it had no intention of further slashing interest paid on small savings schemes run by the Centre. A panel headed by former RBI governor Y.V. Reddy has recommended that administered interest rates on these savings schemes be cut further.

Sinha said revenue collections had started looking up in the second quarter of the current fiscal and exuded confidence that the government would be able to achieve revenue targets. The minister said service tax collections had been “excellent” and these could surpass targets.

The revenue department, however, remains pessimistic about meeting targets and has, in internal notings, predicted that it might fall short in excise and customs, which form the bulk of tax revenues, by as much as 20 per cent.

He said a programme of concentrating on recovery of arrears, asking appellate tribunals to speed up adjudication and better data management was being initiated to squeeze out more tax revenues than were flowing into government coffers.

CALL TO PLOUGH BACK IT REFUNDS

BY A STAFF REPORTER

Calcutta, Oct. 5:

The government has asked companies to plough back the Rs 6,000 crore which they have received by way of income tax refunds for the 2000-01 fiscal into the economy.

Addressing city industrialists at an interface here today organised by the Indian Chamber of Commerce, revenue secretary S. Narayan said reinvesting these funds into the system will help contain the current economic slowdown to some extent.

Government spending, cut in the first half, is being increased to create fresh demand in the market, he said, adding it is now the turn of industry to come forward and add financial muscle to their projects to get the system going.

“Although the economic slump and several external factors have slowed down growth, I can assure you everything is now back on track and the government will be able to keep the promises made in the budget before the action taken report is placed before Parliament,” he said.

The Centre, he added, is considering a new approach to spur industrial growth, which includes removing concessions and exemptions given to companies.

Narayan said some concessions can be removed in consultation with industry and new concessions, which will have greater impact, can take their place instead.

Referring to the recommendations of the Partha Som committee, he said several concessions and exemptions have ceased to be relevant.

Narayan also said the government is considering sector-specific strategies rather than industry specific ones. This will help solve problems of specific sectors, he said.

Narayan also talked about the need for rationalising import duties along the line of excise
duty.

UNIVERSAL BANKING PLAN PUT ON HOLD

FROM JAYANTA ROY CHOWDHURY

New Delhi, Oct. 5:

The government has decided to put on hold proposals to convert financial institutions like IDBI and ICICI into universal banks for the time being.

“It’s a complex issue. We have not yet decided on whether to go ahead with it,” finance minister Yashwant Sinha told The Telegraph after a meeting with the IDBI top brass here today.

Top finance ministry officials said a decision was being kept in abeyance as the ministry was not yet convinced how term-lending institutions would continue performing their primary responsibility of lending to huge infrastructure projects.

This runs contrary to the earlier line of thinking which suggested FIs be converted into universal banks as the government could not possibly continue to bail them out. However, with recessionary clouds now hovering over the economy, the government feels increasing spending on infrastructure projects could have a catalytic effect on all sectors.

The thrust on completing mega private sector projects, especially infrastructure ones, means the government does not want institutions like IDBI to dilute their focus on this area. Several FIs like ICICI on the other hand, want retail businesses and corporate finance to be their key focus areas.

But work on the roadmaps to turn FIs into universal banks where they would be free to take on any kind of banking activity has since shown they would be forced to dilute their current focus areas of funding long-term projects. That is something the central government does not want them to do.

However, the government will review the decision on universal banking if its concerns on funding mega projects could somehow be addressed, officials indicated.

Besides, several regulatory glitches need to be resolved, such as the Reserve Bank of India’s (RBI) requirements of capping the promoter’s equity at 40 per cent and new merger norms.

As the promoter of these institutions, the government is also worried by projections that after conversion into universal banks, their income, profitability and market risk profiles may actually worsen in the short run.

In a report on its reverse merger deal with ICICI Bank, which it plans to convert into a universal bank, ICICI has pointed out that statutory reserve ratios which were imposed on banks by the RBI would increase market risks.

According to the proposal, Rs 9.8 crore
will be brought into India right away while the balance will be invested “as and when required”.

The proposals were cleared by commerce and industry minister Murasoli Maran here, according to an official statement.

Other proposals cleared by Maran include Rs 8.58 crore FDI inflow envisaged by German engineering company Sartogrius Separation Engineering Gmbh, which plans to increase equity in the Indian venture to 90 per cent
from the present 51 per cent. The German company manufactures filtration process equipment.

Godrej has been allowed to exit in its joint venture with the Dutch major Selviac Nederland BV in the joint venture company Godrej Pillsbury.

Maran also cleared Toshiba Corporation of Japan’s proposal to set up a wholly-owned subsidiary; this proposal, however, involves no fresh FDI inflow.

US credit rating agency, Duff & Phelps Credit Rating Company’s Rs 14 crore FDI proposal for increasing foreign equity in Indian arm Fitch Ratings from 33 to 100 per cent was also cleared by the minister.

Bharti network deal

Bharti Enterprises, the country’s largest telecom conglomerate, has farmed out three-year contracts worth $ 140 million to Ericsson and Motorola for its new cellphone networks in Mumbai and the states of Maharashtra and Gujarat. The contracts will be shared equally by Motorola and Ericsson—$ 70 million each—and provide for GSM infrastructure in five new areas and network expansion in one existing area, as well as GPRS networks for Delhi and Bangalore.

GSM or the Global System for Mobile communications is the most favoured standard for mobile telephony networks in Europe and Asia while GPRS (General packet Radio Service) enables high-speed access to internet-based content and services via a mobile terminal and opens up the mobile network to a wealth of data applications.

INFOSYS HOLDS OUT INTERIM PAYOUT HOPE

FROM OUR CORRESPONDENT

Mumbai, Oct. 5:

Defying the gloom in the software industry, Infosys Technologies today said its board would meet on October 10 to decide whether it can hand its slowdown-spooked investors an interim dividend.

The meeting, which will also consider second quarter financial results, is being keenly watched for indications on the growth rate in the forthcoming quarter.

There are fears that the exports of software services in the next quarter could take a beating from the terror attacks in the US and the deepening global slump.

Sources say the plan to offer an interim dividend is aimed at improving investor sentiment. “Most of the domestic companies have announced profit warnings. In such a scenario, it is heartening to find that a company is considering an interim dividend,” a broker said.

The announcement hoisted the Infy share today as domestic, foreign funds and local institutions — which have taken a shine to the company in the past few days — scooped up the stock in anticipation of a bonanza. Opening at Rs 2360, the scrip peaked at Rs 2508 before ending at Rs 2487.65 as the top traded stock on BSE; 5.91 lakh shares changed hands on a turnover of Rs 143.10 crore.

However, an industry analyst said he was not surprised at the dividend talk, and expected the software major to maintain its practice of handing payouts that account for around 10 per cent of its profit. “The company has been giving dividends that make up 10-15 per cent of its profit in the past. The rest is invested in capital expansion (capex) and retained as cash,” said Tejas Barfiwala, a software analyst at Khandwala Securities. Infosys is sitting on cash and cash balances worth Rs 600 crore. It has set aside $ 80 million for capex this year.

Analysts feel the company is likely to maintain the industry growth rate of 30 per cent in the third quarter. However, Barfiwala predicts a lower figure of 25 per cent.

TORNADO TO TAKE RIVALS BY STORM

FROM OUR CORRESPONDENT

New Delhi, Oct 5:

Car makers are always looking to find a niche within a niche as they struggle to find innovative ways to ratchet up sales in a market that has been sandbagged by falling demand.

This time it’s the sporty version of their more sedate sedan models in the so-called C segment. After Ford came out with its Ford Ikon SXI and General Motors with its sporty version of Corsa, Hyundai Motor India Limited (HMIL) took the wraps off its Accent Tornado today. While the sporty variants of other cars have added external features like spoilers, grippers, and lights, the Tornado is offering a stronger 1.6 DOHC petrol engine to give the car more power than the previous Accent versions.

“It is a sporty offering but not a sports car. It is a luxury C-segment car with more power from a better engine. Hyundai at present has a 23 per cent market share. With this offering, we want to increase the market share by 15 per cent,” said B.V.R. Subbu, HMIL’s director, marketing.

HMIL managing director Yang Soo Kim said, “We have undertaken a consumer study and think that C-segment is the most happening segment at present. So our main focus will remain at this segment only. To compete with other B-segment offering, we may spruce up the Santro, but our interest will definitely be on the C-segment.”

The Accent Tornado is priced at Rs 7,28,978 (ex-showroom Delhi). “With another lakh added to Accent GLX, the customer will get more power, rear spoiler and the 14-inch alloy which ensure absolute safety of the car. We have not just changed the external elements, but also the internal elements which will make it more safer and provide greater power,” Subbu said.

There are cosmetic changes as well: it will have a metal grain fascia, audio system with 6-CD changer and 4-speakers 2-tweeters output units, power window control panels and a leather-wrapped gearshift knob.

DABUR TO TAKE ON BOROLINE

FROM OUR CORRESPONDENT

New Delhi, Oct. 5:

Dabur is getting ready to take on the two boro-cream giants of Calcutta — Boroplus and Boroline — with its antiseptic cream.

Dabur India today announced its entry into the antiseptic cream category with the launch of Dabur BoroGlow which will retail at Rs 12 for a 20 gm pack.

The Delhi-based pharmaceutical major has decided to enter the Rs 130-crore boro-cream market dominated by the two Calcutta-based companies — Himani with its Boroplus (49 per cent market share) and GD Pharmaceutical’s Boroline (28 per cent market share).